TFSA vs RRSP — Which Should You Choose?

The TFSA and RRSP are both powerful tax-advantaged accounts, but they work in fundamentally different ways. The RRSP provides an upfront tax deduction and taxes withdrawals as income, while the TFSA uses after-tax contributions and provides completely tax-free withdrawals. The optimal choice depends primarily on whether your marginal tax rate is higher now or will be higher when you withdraw.

As a general rule, if your current marginal tax rate is higher than your expected rate in retirement, the RRSP provides the greater benefit. If your current rate is relatively low — or if you value the flexibility of tax-free withdrawals — the TFSA is typically the better choice. For many Canadians, using both accounts strategically produces the best overall outcome.